Two Wild Rumors about Federal Taxes and eBay Profits

By Marsha Collier

There are some rumors circulating about not having to pay taxes on eBay profits. If you hear any variation on this theme, smile politely and don’t believe a word of it. Here are two of the more popular (and seriously mistaken) tax notions running around the eBay community these days.

The U.S. government uses two laws on the books to go after eBay outlaws. One is the Federal Trade Commission (FTC) Act, which prohibits deceptive or misleading transactions in commerce. The other is the Mail or Telephone Order Merchandise Rule, which requires sellers to ship merchandise in a timely manner or offer to refund a consumer’s money. The FTC is in charge of pursuing these violations.

If you have a question about federal laws, you can find a lot of information online. For example, these two websites keep current lists of U.S. law and federal codes that affect e-commerce sellers:

Rumor #1: e-commerce isn’t taxed

One story claims that “there will be no taxes on e-commerce sales (sales conducted online) for three years.” No one ever seems to know when those three years start or end.

Well, presently it is three years down the pike from the Marketplace Fairness Act of 2013 (which is still not yet the law of the land), but the scene is still murky with regard to Internet sales tax. Although this may sound like the states will be charging state sales tax on all e-commerce purchases, the reality isn’t that simple.

The bill would require all online sellers with total sales over $1,000,000 to pay sales tax in each state in which they have transactions. When you get to a million dollars in sales, many states have joined a streamlined tax act that allows businesses to pay such tax on one form.

Rumor #2: Profits from garage sales are tax exempt

“eBay is like a garage sale, and you don’t have to pay taxes on garage sales.” (Uh-huh. And the calories in ice cream don’t count if you eat it out of the carton. Who comes up with this stuff anyway?)

This notion is just an urban legend — somebody’s wishful thinking that’s become folklore. If you make money on a garage sale, you have to declare it as income — just like anything else you make money on. Most people never make any money on garage sales because they usually sell things for far less than they bought them for. However, the opposite is often true of an eBay transaction.

Even if you lose money, you may have to prove it to the government, especially if you’re running a small business. You most definitely should have a heart-to-heart talk with your accountant or tax professional as to how to file your taxes. If something might look bad in an audit if you don’t declare it, consider that a big hint.

To get the reliable word, check with the IRS’s e-commerce office. The good folks there mentioned that even if you make as little as a buck on any eBay sale after all your expenses (the cost of the item, eBay fees, shipping charges), you still have to declare it as income on your federal tax return.

If you have questions about eBay sales and your taxes, check with your personal accountant, call the IRS Help Line at 800-829-1040, or visit the IRS website. And be friendly. (Just in case.)